When Calastone flicks the switch on its swish new blockchain fund transaction system next May clients would reap “numerous and immediate” benefits, according to acting head of the Australasian arm of the business, Ross Fox.
Fox said Calastone’s well-signalled move to a “permissioned” blockchain managed fund transaction service would deliver both efficiencies and open up new business models for its global network of 1,700 plus financial institutions, which includes a large swathe of the Australian market and a growing presence in NZ. “We expect the benefits will flow all the way down through the fund industry to consumers,” he said.
The UK-headquartered firm – which offers a sort of ‘Google translate’ service for the diverse players in the fund back-office world – estimates its Distributed Market Infrastructure (DMI) solution could strip £3.4 billion (or about A$6.0 billion) of annual costs out of the industry globally (excluding the US).
Fox said its calculations showed the DMI system could’ve saved the Australian industry almost A$40 million over the last six years. “Those savings will only increase over time,” he said.
Next May, Calastone intends to transition to the DMI for its entire global client base in what Fox said would be a “seamless” affair. And clients would not have to make any changes their own systems to tap into the DMI, he said.
“We’re working with organisations across the fund value chain including custodians, platforms, registry providers, administrators and asset managers,” Fox said. “How they harness the full potential of the DMI will depend on their own business models but the technology is real, and it’s here now.”
In Australia, more than 95 per cent of platforms are using Calastone to transact, sending their fund transactions to the majority (more than 65 per cent) of fund managers in the region and also cross border.
Also, the total transactional value across the Calastone Australia network is around A$80 billion over the last four years, representing the trading of over 1100 individual funds
“Our research with Forrester earlier this year shows that Calastone has saved the Australian Funds Industry over A$38m in costs since the network’s local launch in 2012, achieved in line with Calastone’s network growth. The DMI savings are expected to be significantly higher,” Ross Fox said.
This July Calastone showcased its DMI to clients and potential clients. At the time, Vince Lucey, Calastone head of innovation and change, said the blockchain-based system would significantly reduce errors and speed up fund transaction times as all parties in the deal would have access to “clean, accurate data” in real-time.
Lucey said the DMI could process its entire global fund transaction data in 20 minutes.
He said the blockchain technology itself was secondary to the practical implications for the fund industry.
“We focus very much on the business applications – having technology for technology’s sake doesn’t achieve very much,” he said.
For example, Fox said real-time reconciliation would remove much of the duplication across the industry, reducing costs, error rates and freeing up resources.
“The DMI can remove the requirement for many unnecessary manual processes,” he said. “And allow businesses to innovate.”
Fox said the cost of using the Calastone DMI would depend on the range of services clients wanted to access.
He said Calastone was “having conversations” with clients around the sorts of service and products they’d like to build on the back of the DMI.
Unlike open blockchain networks (such as bitcoin), the DMI operates on a ‘permissioned’ system – will all participants approved and known – that removes the need for the complex ‘mining’ process associated with crypto-currencies.
Calastone’s May-day migration to blockchain next year – a global first for the fund market – should also be painless, Fox said. “We’ve provided proof-of-concept and we’re very familiar with migration processes,” he said.
– David Chaplin, Investment News NZ